According to Kanthaswamy Balasubramaniam, how can the Indian economy revive from this

catastrophe?

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3 Answers

Kanthaswamy Balasubramaniam

, former Chief Manager at Central Bank of India (1987-2017)

Answered September 5, 2020

Thanks for the A2A

According to me - the Indian Economys recovery from the long problems of Demonetization,Poor
Implementations of GST, Global Slowdown and COVID 19 - would involve - A Two Pronged
Movement

As many doctors would know - When a patient is suffering from Hemolytic Anemia - you have to
transfuse blood into the patient to keep the patient alive and at the same time treat him with
Corticosteroids like Prednisone and Dexamethasone, Cyclosporine and Low Dose Aspirin to pump up
his platelet count, Hemocrit and Hemoglobin

(Reference - A Case of Insurance Bad Faith filed in Civil Court. Luckily the Patient Survived because it
was a Kerala Government Hospital)

The Indian Economy would require - Two Pronged Strategies - Short Term and Long Term

THE KEY SHORT TERM OBJECTIVES (1 Jan 2021 - 31 Dec 2024)

—————————————————

The Key Short Term Objectives are:-

(a) Infusion of Money for a Big Portion of the Masses

(b) Infusion and Availability of Low Cost Credit

(c) Increase of at least 25% in Government Spending

(d) Increase of at least 25% in Public Spending

(e) Increasing Disposable Income

(f) Increasing Consumer Demand

(g) Increase Public Debt

Now how do you achieve all of these? The only way for that is :-

(a) Issuing Public Bonds for Sale directly to the Public with massive Tax inducements which will
result in increase of Public Debt from 58% to 75% as quickly as possible. This will bring in a lot of
money to the Government to cover shortfalls due to GST revenue and will also help the Government
increase its spending.

Bonds to build Bridges, Roads, Airports payable over 30 Years - 50 Years with 50% - 100% Tax
Exemption between 1 - 10 years upto say Rs. 25 Lakhs and at a return of around 6.5% a year payable
after the first 7 years would attract a lot of public interest

(b) Printing Rs. 8 Trillion of Controlled Printing - This should be carefully controlled and securities of
Rs. 8 Trillion should be printed in the form of non Fiat currency like Rs. 50,000/- notes or Rs.
100,000/- notes as security so that Banks can issue low credit loans to the Government of India to
increase its spending and on public welfare as well.

Since inflation is anyway rampant today - that threat has been defeated.
(c) Sacking the RBI Governor and Finance Minister Immediately - Getting the best people for the
Job would be crucial.
(d) Changing the NPA rules - From 90 Days to 180 Days for Unsecured/Depreciating Assets and from
90 Days to 18 months for Houses/Gold and from 90 Days to 5 Years for Corporate Loans exceeding
Rs. 1 Crore subject to Controlled Audit by the Bank in question.

(e) Go Socialist for at least 5 years - Tax the Rich. Increase the Non Taxable Income Limit from Rs.
3,00,000/- to Rs. 15,00,000/- and tax the persons with more than Rs. 5 Crore per Annum income at
50% flat taxes for a minimum of 5 years (Only Personal Income , not Corporate Income).

(f) 3 Rates of GST - 0%, 8% and 42% - with 42% Taxes for Luxury Goods like BMW Cars, Audis,
Landrovers, Rolexes, 5 Star Hotel Stays in rooms over Rs. 25000 etc.

This would give the economy a tremendous stimulus in the next 5 years because of more money
infusion, more circulation of money, more disposable income, more consumer demand, less direct
taxes etc.

THE KEY LONG TERM OBJECTIVES (1 Jan 2021 - 31 December 2045)

————————————————————————————————-

The Key Long Term Objectives are:-

(a) Create and Develop Intellectual Property based Corporations instead of Service Based Companies
like Jio or Infosys or Byjus (Remember Tik Tok has its Algorithms, so does We Chat and PUBG and
several other games. They are all Proprietary Softwares)

(b) Create a Manufacturing Hub in India to fulfil at least 90% of our Domestic Supply

(c) Increase Manufacturing Units in India

(d) Minimize the time and corruption and red tape required to establish businesses in India

(e) Promote Unity to focus solely on development

(f) Liberalize the Society of India

And how do you achieve all of these? The only way is :-

(a) Avoid Total Privatization of Any Strategic PSU for the next 20 years - The Govt should hold no
less than 51% of any PSU for at least 20 years (Ie:- 2040–2041) by which time hopefully the system
can protect consumers. At the same time - The Government should start divesting in PSUs slowly
starting from say 2022. Likewise at least 50% of all Government Recruits should be contract
employees on 3,5,7 and 10 year contracts with bonuses and renewals subject to performances.

(b) Change the Railways from Passenger Majority to Freight Majority - Indian Railways has to
become Freight based. This means 80% of the routes should transport Freight across the country like
it happens in China, Russia and the US. This means Highways have to become Passenger based. This
will mean the end of 70% of the Trucks but that is perfectly acceptable. Only Wheelers and
Container Lorries should use the Highways.

(c) Unify the Rivers - All Rivers should be interlinked and controlled by a single body like the GST
Council which is independent of the Govt of India. The Rivers can then be used for Freight Transport
and for Passenger Transport. Tributaries can be diverted for Canal Irrigation.
(d) Establish the Eminent Domain Act - Central Govt should be able to acquire any land as long as
they pay the market value for the Land. No objection can be raised from anybody including the
Supreme Court or State Government. The Amount of value can be disputed but the Land will be
utilized within 90 days of the order being passed.

(e) Create Super Cities and Sin Cities - Create Cities which allow Gambling (Casinos) and Prostitution
Legally and Alcohol and even Drugs like Estacy or Meth like Amsterdam. Within the Cities - all these
are allowed legally but outside these Cities - the punishment for the sins should be massive jailtimes.

Likewise Create Super Cities with select populace of the best and brightest and a labor force.
(f) Create a National Labor Force

(g) Create a Black Box Tender System to circumvent Corruption in Tendering and abolish the L1
Method.

(h) Abolish the Territorial Reserve Army and create an Auxiliary Army / Civil Defense

(i) Establish the North East Corridor for Manufacturing

(j) More Polytechnics. ITIs and lesser Engineering Colleges.

All this can be done as long as a Party gets majority in the Lok and Rajya Sabha and keeps the
Supreme Court in its place.

This could make India become more like China by 2050.

What will be the consequences if the Indian government privatizes all public sector banks in the
near future?

How?

Govt owns huge capital investment in these banks and the capital is way higher than actual market
worth. For instance SBI has a market Capitalization of Rs. 2.67 Lakh Crores or Rs. 2.67 Trillion. The
Govt owns around 62% or Rs. 1.64 Trillion worth of Shares. However 5 Independent agencies have
valued the Market Cap to be worth between 1.08–1.14 Trillion if Govt relinquishes its 62% stock to
the market and this would mean a Market Cap fall of Rs. 0.56 Trillion which is huge. Same with all
other banks.

So GOI selling its stock to private persons means a huge discount which would be financially
disastrous. It is why Air India Privatization plans remain at ground level. Nobody is offering to buy the
Company at the present price. They prefer at least 40% disocunted price which would mean huge
issues.

Secondly - Privatization is not always a good thing. In a country like US - the Private Sector is well
developed and has laws that have been around for 140 -170 years. Private Sector has been
developed and entreprise has been around since 1776. However in India- Private Sector is still
relatively new (1995-) and is extremely unstable and top heavy with mismanagement in most cases
[Global Trust Bank, East West, Damania, Kingfisher, Jet Airways, Reliance Communications, STNDL,
Aircel, Infocomm, Datatel]. To allow private individuals control of the banking where 85% of our
retail accounts, savings and investments are present would be suicidal. Imagine if people like Nirav
Modi or Anil Ambani were in charge our our savings and investments. They could blow away our
money on outside projects or filling up other holes. Right now there is a huge level of safety that
Govt of India is safeguarding our money - and it is safe as houses.

True there are private banks like HDFC or ICICI but even they are tightly regulated. The retail funds
available with these banks is very little compared to the PSU Banks, but once PSU banks are
privatized - the retail funds would all be in private hands. Today an individual may have an account
with ICICI and SBI - so that he can call ICICI the riskier account but tomorrow everything would be
riskier.
If India had US Courts or a US Justice System where Swift Justice would be delivered or if Indian
Population were like Americans - inured to financial disasters and subsequently better informed than
fine - but we have neither - we have a presently ridiculous Supreme Court and a Snail paced Judicial
System and we have been comfortably spoon fed by GOI for 70 years. Sudden Privatization would be
a huge disaster and any economic crisis may result in revolutions.

Thirdly - there are the Loss making Black Hole giants like SAIL, Coal India, Hindalco, Air INdia which
guzzle hundreds of crores every year from PSU Banks. Once they are privatized - the Individuals in
charge will simply refuse to extend or grant such loans and GOI will be in deep trouble. For instance
Coal India has 38732 Crore outstanding and based on its current profitability is valued outside at
around 55% of what GOI values it. Air India has 25400 Crores outstanding. All these loans are
granted by PSUs because GOI have 62% stake and can call the shots. Otherwise - Banks will simply
pull the stops - so where will GOI get the money from to run these black holes? They will have to sell
the black holes and nobody will pay more than 50% of the cost.

So this will again lead to huge losses, economic losses and a huge divide between rich and poor as
the same Ambanis, Adanis will purchase these banks and black holes, become richer and richer while
we public remain at the same level

So Privatization if at all must be very gradual and should start as Divestment like Shouries proposal
(Although ONGC has not quite panned out).

Sweden, Norway, Denmark all have Government owned GOS which are highly successful so why not
India?